(Corrects story published on Feb. 29 to remove reference to
green card in second paragraph.)

Feb. 29 (Bloomberg) -- China’s property stocks fell, with
the gauge tracking developers traded in Shanghai dropping the
most in three months, as the city stated its definition of
locals excludes residence permit holders.

The statement was issued a week after a newspaper
affiliated with state-run Xinhua news agency said Shanghai had
tweaked its definition of locals to allow the city’s residence
permit holders to buy second homes after three years.

The clarification means 671,000 in the city of 20 million
who were issued residence permits as of March 2009 would be
excluded from the pool of second-home buyers, China Business
News reported. Shanghai will “strictly” implement the home-purchase restrictions, according to a statement on the website
of the city’s housing authority late yesterday.

“Shanghai’s policy was halted because it has become a hot
topic,” Eric Zhang, a Beijing-based analyst at China
International Capital Corp., the country’s biggest investment
bank, wrote in a note. “The central government has big concerns
over the economy this year, so they only will call off major
easing. Only quiet policy fine-tuning may be accepted.”

The property gauge on the Shanghai Composite Index lost 3
percent at the close, the most since Nov. 30 and biggest decline
among five industry groups on the benchmark measure. China Vanke
Co., the biggest listed developer on mainland exchanges, slid
2.8 percent to 8.28 yuan in Shenzhen trading, while Poly Real
Estate Group Co., the second largest, fell 3.3 percent to 11.1
yuan in Shanghai.

Property Stocks Decline

Chinese developers traded in Hong Kong also retreated.
China Overseas Land & Investment Ltd., the biggest of the
nation’s developer listed in the city, slipped 2.5 percent to
HK$16.26, while Country Garden Holdings Ltd. dropped by 4.1
percent to HK$3.51. Developers made up four of the 10 biggest
decliners on the MSCI China Index tracking mainland companies
traded in Hong Kong.

Local governments have attempted to ease property
tightening policies even after Premier Wen Jiabao restated his
stand this year that China won’t waver on its real estate
controls and efforts to bring prices down to a reasonable level.

The eastern Chinese city of Wuhu on Feb. 13 reversed its
decision to relax property curbs. The mid-sized city in Anhui
province had planned to waive a deed tax and subsidize some
purchases on Feb. 9, becoming the first Chinese city this year
to signal its intention to ease property measures. In October,
the southern Chinese city of Foshan also shelved plans to ease
limits on home purchases one day after its announcement.